Market Overview

I have been getting anxious lately, because I did not have enough free cash to feel good about committing more. However, prices in the market were very tempting.

Now, my recent doubling of my stake in Activision has begun to pay out, so I perhaps I can take a quick profit from half, and leave the other half to run. IMAX is also beginning to look ripe for a sell. Though it is not at its peak for the year, I am still up 33% from my buy-in less than a year ago. I am convinced there is still a final puff left in this cigar – I want to hold until we get closer to the Spiderman and Dark Knight release dates.

It is clear that Dark Knight will be a hit, but I wonder if investors have factored in the fact that Dark Knight lends itself to IMAX theaters more than most other blockbusters? I am not sure whether to attempt to sell out in the week before or to wait until after the release, to see if the success does end up surprising the market.

In either case, the stock may not perform if the market tanks precipitously. That, I think, is the bigger danger in holding onto my IMAX positions – I will not have the cash free to buy if the market does tank. To mitigate that risk, it is probably a good idea to take some money off of ATVI.

Green Mountain Coffee Roasters (GMCR) has been looking attractive at these prices. I think at $20, the risk is certainly worth the potential reward. At $22.48, Tuesday’s close, the risk is slightly higher, but still attractive. I will likely write a Seeking Alpha article on this idea in the next few days, so in the interest of keeping that content exclusive, I will not delve too far into my arguments. I will suffice with a few key points that are striking my interest: decreasing inventories, no new share issuances (other than compensation), P/E far less than growth (even after expectations come down, which they will), competitive advantage in the New England area (First Mover and brand name recognition). The key risk is the SEC investigation of inventory accounting, but the Starbucks competition and patent expiration ideas are not as serious as the market thinks.

One new company on my watchlist, and this is an odd one, CKX Lands (CKX). This is a lands rights company in Southwest Louisiana, that makes money from oil and gas royalty payments. There are established basins in the region that the company has been relying on to pay dividends and purchase more rights, however I think there is potential for a new sourcerock: the Eagle Ford. The idea that the Eagle Ford might extend in several Louisiana counties is being tested with some exploratory wells. In late 2011, there were some promising results out of the first wells, but I think we will need a few more exploratory successes before this becomes a sure shot. If the Eagle Ford really does extend into lands owned by CKX, then there could be potential for huge growth in the payments that CKX is receiving. The stock has also popped recently, so it might be worth it to wait for this one to cool off.

I should probably steer clear of macro investing after my Spanish debacle. I closed out my position a in the days leading up to the Greek elections with about a 60% loss on the puts. I had been hoping the Syriza party would be projected to win in the days before, so that they might choose to reject the bailout, leave the Euro, and cause panic reactions in the markets of Spain and Italy. However, New Democracy became the front-runner in the polls, so I could not ignore the consequences and closed out for a loss. Indeed, the New Democracy party took the election, and with it, the bailout terms.

I am tempted to foray again into macro – this seems like such a tumultuous time in macro events. But I will wait before venturing in, and next time, I will do so with a lower degree of leverage. If I use options, I will use farther dated or more in-the-money options, or if I use currencies, I will use low leverage levels.

After re-reading parts of Alchemy of Finance, I am beginning to see the advantages of the structure of Quantum Fund. By investing in extremely undervalued companies, which are essentially low-risk and high-reward, you can lower the downside for the overall portfolio. Smallcaps may have large amounts of volatility, but more illiquid companies, like BNCC, change price very infrequently, and so can vary downwards only so much. By investing all available cash in companies like this, you can free up all of your available leverage to speculate on macroeconomic events.